Financial Institutions Law Alert

Noting it was a matter of first impression, on April 21, 2021, the Eleventh Circuit held consumers may assert a claim under Section 1692c(b) of the Fair Debt Collection Practices Act (the “FDCPA”) for a debt collector’s transmittal of the consumer’s personal information to a third-party. See Hunstein v. Preferred Collections & Mgmt. Servs., Inc., No. 19-14434, 2021 U.S. App. LEXIS 11648 (11th Cir. Apr. 21, 2021). As the Court acknowledged in its opinion, the Hunstein ruling has the potential to dramatically alter debt collectors’ standard business practices. More specifically, debt collectors should closely analyze their relationships with third-party vendors and consider the possibility of keeping collection practices in-house or operating these practices through outside counsel to avoid running afoul of the FDCPA.

The facts in Hunstein are unremarkable. Richard Hunstein incurred a debt arising out of his son’s medical treatment at a hospital. The hospital assigned the debt to Preferred Collections & Management Services, Inc. (“Preferred”), which hired Compumail to handle debt collection and the preparation of a “dunning” letter. A “dunning” letter notifies consumers they are overdue in paying an account receivable to the sender.

Preferred transmitted various information to Compumail regarding Mr. Hunstein, including: (1) his status as a debtor, (2) the exact balance of his debt, (3) the entity to which he owed the debt, (4) that the debt concerned his son’s medical treatment, and (5) his son’s name. Compumail used the information to send a dunning letter to Mr. Hunstein. Mr. Hunstein filed suit against Preferred alleging its transmittal of this information to Compumail constituted a violation of 15 U.S.C. § 1692c(b), which, subject to certain narrow exceptions, prohibits debt collectors from communicating with third parties “in connection with the collection of any debt.” The listed exceptions are “the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector,” none of which applied to Compumail. The district court dismissed the suit for failure to state a claim, holding Preferred’s transmittal to Compumail did not qualify as a communication “in connection with the collection of any debt.”

The Eleventh Circuit considered whether Mr. Hunstein had Article III standing to assert a claim under Section 1692c(b) and determined Mr. Hunstein had standing based on a violation of this statutory provision giving rise to an “intangible-but-nonetheless-concrete” injury. After analyzing claims asserting invasions of personal privacy and the FDCPA’s express declaration that “invasions of individual privacy” are among the harms against which the statute is directed, the Eleventh Circuit held Mr. Hunstein had standing to assert his claim.

Turning to the merits, the Eleventh Circuit held it was “inescapable” the transmittal from Preferred to Compumail constituted a communication “in connection with the collection of any debt.” The Court rejected Preferred’s argument to the contrary, holding that requiring a communication to include a demand for payment for it to be “in connection with the collection of any debt” would render the exceptions of Section 1692c(b) superfluous. The Court also rejected Preferred’s invitation to adopt the multi-factor test used for examining communications under Section 1692e, finding these tests often “obscure more than they illuminate,” and noting Section 1692e targets communications with the consumer while Section 1692c(b) targets communications with third parties. Finally, the Court rejected Preferred’s “industry practice” argument that it commonly shares information regarding consumers with third-party vendors, holding its obligation is “to interpret the law as written” regardless of the associated costs.

To date, four putative class actions asserting claims under Section 1692c(b) have been filed against debt collectors in the Northern District of Alabama. We expect additional putative class actions against debt collectors to be forthcoming.

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